i)Liggio (1974a) defines it as the difference between the levels of expected performance as envisioned by the independent accountant and by the user of financial statements. The Cohen Commission (1978) on auditors’ responsibility extended this definition by considering whether a gap may exist between what the public expects or needs and what auditors can and should reasonably expect to accomplish.

ii)According to Guy and Sullivan (1988), there is a difference between what the public and financial statement users believe accountants and auditors are responsible for and what the accountants and auditors themselves believe they are responsible for.

iii)Godsell (1992) described the expectation gap as “which is said to exist, when auditors and the public hold different beliefs about the auditors’ duties and responsibilities and the messages conveyed by audit reports.”

iv) Jennings et al. (1993), in their study on the use of audit decision aids to improve auditor adherence to a ‘standard’, are of the opinion that the audit expectations gap is the difference between what the public expects from the auditing profession and what the profession actually provides. Monroe and Woodliff (1993) defined audit expectation gap as “the difference in beliefs between auditors and public about the duties and responsibilities assumed by auditors and the messages conveyed by audit reports.”

v)According to AICPA (1993), the ‘audit expectation gap’ refers to the difference between what the public and financial statement users believe the responsibilities of auditors to be; and what auditors believe their responsibilities are.

vii)The ASCPA and ICAA (1994) observe that the term ‘expectation gap’ should be used to describe “…the difference between expectations of the users of financial reports and the perceived quality of reporting and auditing services delivered by the accounting profession.”

Components of Expectations Gap

Three components of the expectation gap can be identified as follows:

1)Reasonableness gap

A gap between what the society expect auditors to achieve and what they can reasonably be expected to accomplish. Such a gap exists because of misunderstanding of users, users’ over expectations, uneducated users, miscommunication of users, and miss-interpretation of users and unawareness of users from the audit practice limitations.

2) Deficient standards gap

A gap between the duties, which can reasonably be expected of auditors, and auditors existing duties as defined by law and professional promulgations. Kinney (1993) states that one of the major causes of the profession’s expectation gap is the difference between what the standards of the profession provide and what users might desire. In addition, such a gap existed because of lack of sufficient standards to covering all of audit practices or the existence of the insufficient standards for audit responsibilities, detection of fraud and illegal acts. In short, the deficient standards gap is only because of insufficient or poor standards to audit functions.

3)Deficient performance gap

A gap between the expected standard of performance of auditor’s existing duties, and performance as expected and perceived by society (Porter et al., 2003). Such a gap also confirmed by scholars and researchers in a lot of countries. The main reasons of such a gap may be classified as follows: Non-audit services practicing by auditors, self-interesting auditors and economical relationship with clients, unqualified auditors, and dependent auditors.

Causes of Expectations Gap

• Overreliance on client representations

• Lack of awareness or recognition of an observable condition indicating fraud...

YOU MAY ALSO FIND THESE DOCUMENTS HELPFUL

...The Existence of AuditExpectationGap:
Bangladesh Perspective - Perceptions of Naïve Investors, Students and Professionals Regarding the Audit and Role of Knowledge Affecting the Gap.
Abstract:
The study investigates the existence of auditexpectationgap in relation to society’s unreasonable expectations out of auditing in Bangladesh. This also identified the effects of auditing knowledge on the gap. Among all the classes of our society the accounting graduates are expected to have more knowledge on auditing, who represented 60% proxy of the users. For the purpose of the study, the four groups who are chosen as sample users are: (1) General investors (naive) (2) Students not completing any audit course (3) Students completing two (2) courses (Audits I&II) (IV) Articled students either level I or level II. The questionnaire comprised of two parts, were sent regarding three aspects: audit liability, audit reliability and materiality of audit opinion. It is found that the respondent who are closer to auditing concepts expect reasonably out of the auditors than the others. The knowledge in the respective fields affected the expectations both positively and negatively.
Keywords: Expectationgap; audit...

...﻿AUDITING EXPECTATIONGAP: NIGERIAN PERSPECTIVE
Abstract
The auditexpectationgap is critical to the auditing profession because the greater the unfulfilled expectation from the public, the lower the credibility earning potential and prestige associated with the work of auditors. The study examined the level and nature of expectationgap (performance gap) between auditors and users of financial statements. It sought to establish whether auditexpectationgap exists in Nigeria and the perception of the users’ group on its existence. Respondents view was also sought on how the gap could be narrowed. Chi-square (χ2) was used to analyze the data obtained from the study. The data were obtained through questionnaire. One hundred and sixty (160) copies of the instrument were distributed using purposive sampling technique. In this study, a cross-sectional survey was conducted to capture the perceptions of users of financial statements in Nigeria. The tests of hypothesis were done using Microsoft Excel 2010 version. Tests were carried out at a significant level of 5% and three degree of freedom. The findings of the study indicated that there is a wide expectationgap in the areas of auditors’ responsibility for fraud prevention and detection. Audit...

...401-01
Chapter 2: Professional Standards
Introduction
Self-regulated: the standards governing audits were established by members of the profession themselves
Sarbanes-Oxley Acct of 2002
Created: Public Company Accounting Oversight Board (PCAOB) to provide external and independent oversight over the audits of public entities
Responsible for registering public accounting firms, establishing standards for audit engagements, and inspecting the quality of audits conducted by public accounting firms
****Generally Accepted Auditing Standards (GAAS)****
AICPA’s Auditing Standards Board introduced Statements of Auditing Procedures (1939-1972)and Statement of Auditing Standards (1972-present): to provide guidance for the conduct of audits
PCAOB issues auditing standards which are subject to approval by the SEC
Taken together, the relevant pronouncements of the AICPA and PCAOB are collectively referred to as the generally accepted auditing standards (GAAS)
1. A pronouncement issued by the AICPA prior to April 2003 that has not been amended or suspended by the PCAOB (Interim Auditing Standards)
2. A pronouncement issued by the PCAOB that has been approved by the SEC (Auditing Standard)
Auditing Procedures: the particular and specialized actions that auditors take to obtain evidence in a specific audit engagement
Auditing Standards: quality guides to the audit that apply...

...AUDITEXPECTATIONGAP
The phrase "AuditExpectationsGap" was first introduced into the literature over thirty five years ago, by Liggio (1974), under the Cohen Commission. It was defined as the difference between the levels of expected performance "as envisioned by the independent accountant and by the user of financial statements"
The term ‘expectationgap’ is commonly utilized to describe the situation whereby a difference in expectation exists between a group with a certain expertise, and another group, which relies upon that expertise. The public perception of an auditor’s responsibility differs from that of the profession and this difference is referred to as the ExpectationGap.
Furthermore, the expectationsgap has been recognised by the auditing profession as an issue of fundamental importance. The Commission on Auditors' Responsibilities (AICPA, 1978) was established to investigate the existence of such a gap; and concluded:
"...after considerable study of available evidence and its own research such a gap does exist" (p.xii).
Many users misunderstand the nature of the attest function, especially in the context of an unqualified opinion. Some users believe that an unqualified opinion means that the entity has foolproof financial reporting. Some feel...

...document.
11. If the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from the
A. Cash receipts journal to the sales journal.
B. Sales journal to the cash receipts journal.
C. Source documents to the accounting records.
D. Accounting records to the source documents.
12. Which of the following is least likely to be considered when assessing inherent risk?
A. Nonroutine transactions.
B. Estimation transactions.
C. Susceptibility to theft.
D. Expected effectiveness of controls.
13. The risk that an auditor’s procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as
A. Audit risk
B. Inherent risk
C. Control risk
D. Detection risk
14. Evidential matter concerning proper segregation of duties ordinarily is best obtained by
A. Preparation of a flowchart of duties performed by available personnel.
B. Inquiring whether control activities operated consistently throughout the period.
C. Reviewing job descriptions prepared by the personnel department.
D. Direct personal observation of the employees who apply control activities.
15. According to the Code of Professional Ethics for CPAs, which of the following fee arrangements is prohibited?
A. A fee for a review of financial statements that is based on time spent on the engagement.
B. A fee for a review of financial statements that...

...the current crisis of confidence in the public accounting profession after the Enron debacle and series of high profile failures of financial services firms, the issues about ‘auditexpectationgap’ have never been more important. Though it would take an enormous amount of effort to address these issues, I will argue that tremendous amounts could be done in order to close the gap down. In this essay I will discuss some of these issues and in particular the strategies to reduce the gap.
Definitions
Various definitions have been proposed for the auditexpectationgap. Humphrey, Moizer and Turley (1992), suggest that the common element in the various definitions of the gap is that auditors are performing in a manner that is at variance with the beliefs and desires of others who are party to or interested in the audit.
The expectationgap may be decomposed into two components: the reasonableness gap and the performance gap. The former appears when people expect more of audit than it can give in practical terms, such as detecting all instances of fraud. The latter refers to the gap between what auditors can reasonably be expected to do and what they are perceived to do. ‘Performance gap’ can be further split into two – deficient...

...assessment process and the collection of audit evidence?
The risk assessment process happens at the very beginning of the engagement and is to determine the level of risk present in the company. The risk assessment phase is when the auditor assess the client’s situation, conducts an independence threat analysis and decides whether to accept the client or not. The risk assessment is influenced by various factors such as the degree to which external users will rely on the audited statements, the company’s financial position (liquidity), the nature of operations, competence of management and their integiryt, if it is a first time client or not, etc. The riskier the company seems, the lower the engagement risk will be. The engagement risk is a measure of the auditor’s willingness to accept that the financial statements may be materially misstated even though a proper audit has been conducted. The more evidence he will need to gather and the more test he will perform to give an opinion. Therefore, depending on the risk assessment, the amount of work in the collection of evidence will vary largely.
Q2- The following situations involve the provision of non-audit services. Indicate whether providing the service is a violation of the rules of professional conduct for PAs. Explain your answer.
a) Providing bookkeeping services to a listed entity. The services were preapproved by the audit committee of the company.
If...

...﻿Fundamental concepts of f/s audit
Materiality misstatement of accounting information. is a matter of professional judgment
Audit risk The auditor expresses an inappropriate audit opinion when the financial statements are materially misstated, Evidence (more than “per discussion with client)
Major phrases of audit:
Client acceptance/continuance; Preliminary engagement activities; Establish materiality and assess risks; Plan theaudit ;Consider and audit internal control; Audit business processes and related accounts; Complete the audit; Evaluate results and issue audit report
professional skepticism- attitude that includes a questioning mind and a critical assessment of audit evidence
the financial statements ultimately are the responsibility of management
the auditor’s responsibility to provide reasonable assurance with respect to errors, fraud, and illegal acts
Preliminary Engagement Activities: 1. Determine the audit engagement team requirements; 2.Assess compliance with ethical and independence requirements; 3.Establishing an understanding with the client: engagement letter, use the work of internal auditor, the role of audit committee.
Types of Audit Tests
1. Risk Assessment Procedures: Used to obtain an understanding of the entity and its environment, including Internal...